Tanker Market - September 2016

Source: OPEC_RP160909 9/12/2016, Location: Europe

Dirty tanker spot freight rates were under pressure again in August, reflecting decreases among all classes, occasionally reporting the lowest levels seen so far this year.

VLCC rates were down by 12% on average compared with the previous month, while Suezmax spot freight rates reflected an even larger drop, decreasing by 30% from a month ago. The decline in rates was mainly driven by excess tonnage supply as new deliveries continued to join the fleet, along with reduced delays in different ports in addition to limited cargo-loading opportunities. Aframax freight rates were no exception, falling by 14% on average from a month earlier, as excess vessels created an imbalanced market, leading to a drop in freight rates in different regions, with the only exception being the Aframax market in the Caribbean, which remained stable.

Clean tanker spot freight rates strengthened in East of Suez as a result of balanced trading conditions, while the quiet West of Suez market saw a drop in rates as the position list kept growing.

Spot fixtures
Global fixtures dropped by 16.6% in August, compared with the previous month. OPEC spot fixtures declined by 1.74 mb/d, or 15.2%, averaging 9.73 mb/d, according to preliminary data. The drop in fixtures was registered in all regions. Fixtures in the Middle East to both East- and West-bound destinations were lower, as were fixtures outside of the Middle East, which averaged 2.65 mb/d in August, down by 0.46 mb/d from one month ago. Compared with the same period a year earlier, all fixtures were lower in August by between 28% and 12% from the previous year.

Sailings and arrivals
Preliminary data showed that OPEC sailings declined by 2.2% in August, averaging 23.55 mb/d, remaining 0.57 mb/d, or 2.4%, higher than the same month a year before. Arrivals in Europe and West Asia were up from the previous month, while Far Eastern and North American arrivals declined by 0.2 mb/d and 1 mb/d, respectively, to average 4.89 mb/d and 9.62 mb/d.

Spot freight rates
In August, VLCC freight rates dropped further as a bearish trend continued. Rates were under pressure on all selected routes, influenced mostly by a high number of idle ships, lack of delays and slow movement in the market. Freight rates dropped despite a tolerable amount of fixtures in August, as total tonnage supply remained above the demand level. The imbalance was also caused by the continuation of newly built deliveries to the market. Lower freight rates were registered on many routes as high vessel availability existed on all major trading routes.

The highest monthly decline in freight earnings for tankers was seen on the West Africa-to-East route, where earnings declined by 16% to stand at WS41 points. Levels for West Africa were weak as the market suffered from slow activity and competition from smaller Suezmax vessels, the rates for which fell dramatically, making them a viable option on a split cargo basis.

Middle East-to-East and Middle East-to-West spot freight rates decreased by 12% and 6%, respectively, from the previous month. VLCC freight rates showed some firming tendency towards the end of August as September chartering requirements came into the market. However, any enhancement in rates remained only relative, mainly as charterers held back their orders, allowing tonnage buildup to grow.

As seen in the VLCC market, Suezmax freight rates came under pressure in August, though showing higher drops on both a monthly and an annual basis. Suezmax average rates dropped by 30% compared with the previous month.

The biggest rate drop was seen for Suezmax vessels operating on the West Africa-toUS route where they fell by 37%, to average WS35 points, while rates for Northwest Europe-to-US routes decreased by 23% to average WS41 points. The freight rate drop for Suezmax came partially on the back of low loadings from main exporters, combined with an over-populated tonnage list, largely influencing the balance of the tonnage market. An occasional pickup in activities and tonnage demand was seen towards the end of the month, but remained insufficient to balance excess tonnage supply in the market. Suezmax rates reached lows not seen in years despite a rush of inquiries for September loading and partial cargo opportunities.

Aframax spot freight rates followed other classes in the dirty tanker segment in August, falling on average by 14% on reported routes. Aframax rates on all routes dropped without exception from the year before. Vessel availability in the spot market was ample and many markets were lacking activity.

North Sea and Black Sea markets were mostly quiet as fuel oil loading requirements were limited. Additionally, some loading opportunities were lost as a result of maintenance work at the Primorsk port terminal. Spot freight rates for the Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes declined by 20% and 19% to stand at WS66 points and WS62 points, respectively. Aframax freight rates in the East were no exception. They dropped on the Indonesia-toEast route by 19% to average WS72 points.

The Aframax market in the Caribbean also suffered from ample tonnage supply, which came together with a limited volume of cargoes. However, freight rates were occasionally supported by some replacements by late-running ships and the opening of September deals at the end of August, leading to nearly flat rates from the previous month on the Caribbean-to-US route, where they averaged WS180 points.

Clean spot freight rates
In the clean sector, tankers trading on most reported routes registered drops in August, as seen in previous months. The drop in clean freight rates was mostly driven by lower rates registered in West of Suez trade, where those for westbound fixtures declined by 7% from a month before.

In East of Suez, the clean tanker market was balanced mainly for long-range (LR) ships as the Middle East tanker market saw a steady flow of cargoes. The medium-range (MR) market was mostly stable in August, closing the month up by 10%, or WS10 points, from the previous month.

Spot freight rates for tankers operating on the Middle East-to-East route increased to the highest level seen in months to average WS111 points, though rates for the Singapore-to-East route did not follow, dropping by 3% from a month earlier to average WS118 points in August.

Clean West of Suez spot freight rates dropped on all reported routes in August. Rates seen on the Northwest Europe-to-US route registered the highest drop, down by 11% to average WS86 points.

Mediterranean-to-Mediterranean and Mediterranean-to-Northwest Europe routes declined by 6% each to stand at WS113 and WS123 points, respectively.

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